The future of the automotive industry will be shaped by a range of disruptive themes, with environmental, social, and governance (ESG) being the most important theme in 2022. ESG will have a meaningful impact on all leading sellers of automotive vehicles for the next ten years. A detailed analysis of the theme, insights into the leading companies, and their thematic and valuation scorecards are included in GlobalData’s thematic research report,ESG (Environmental, Social, and Governance) in Automotive – Thematic Research. Buy the report here.
While the industry’s environmental impact has long been a challenge, social and governance factors are now coming to the fore, particularly as connected, autonomous, shared, and electric (CASE) megatrends transform the industry. Automakers are increasingly marketing ESG as central to their value propositions, reflected by the decision in 2020 by several to integrate their financial and sustainability reporting methods.
The pressure faced by the industry is both external and internal. Governments have legislated to ban the sale of internal combustion engines (ICE) and hybrid vehicles in phases over the next two decades, while the EU’s average fleet emissions standards have become more stringent. Additionally, automakers compete among themselves regarding the speed of and strategy behind their sustainability shifts. A significant challenge is managing the transition profitably, without which innovation and survival won’t be possible, no matter the strength of ESG credentials. The complexity of ESG is that it is not zero-sum.
However, not all companies are equal when it comes to their capabilities and investments in the key themes that matter most to their industry. Understanding how companies are positioned and ranked in the most important themes can be a key leading indicator of their future earnings potential and relative competitive position.
Insights from top ranked companies
In July 2020, BMW announced its ten-year plan to 2030, by which it intends to reduce CO₂ emissions per vehicle by at least 33% across scopes 1 to 3 from a 2019 base year. This corresponds to a reduction of 40 million tonnes of CO₂ for a 2.5 million fleet (the volume manufactured in 2019). At least 50% of BMW’s global sales should be from fully electric models by 2030, and complete carbon-neutrality is expected to be achieved in 2050. The group also claims that, since 2020, its manufacturing plants worldwide have obtained 100% of their electricity from renewable sources. It has also said that all its production and locations became net carbon neutral from 2021. Additionally, BMW said it has reduced the quantity of cobalt in its battery cathodes to less than 10%, while its electric motors no longer require the use of rare-earth metals.
Since 2020, BMW has been a member of the Initiative for Responsible Mining Assurance (IRMA), which promotes third-party assessments of mining practices for human rights protection. BMW was notably the top-ranked automotive company in the Investor Advocates for Social Justice’s 2020 assessment into human rights and due diligence.
According to Hyundai’s Strategy 2025 objective, the company targets an 8% to 10% electric vehicles (EV) market share by 2040 and to sell 560,000 battery EVs per year by 2025. The company intends to offer a fully electrified line-up in major global markets by 2040. Like other Japanese automakers, this strategy includes fuel-cell vehicles alongside battery electric. Hyundai is a member of the Hydrogen Council, a global coalition of leading energy, transportation, and industry companies concentrating on the use of hydrogen. In May 2021, the company announced a $7.4bn investment in future mobility manufacturing in the US, some of which will be used for EVs and hydrogen vehicles. In September 2020, the company announced a partnership with battery maker SK Innovation to develop an “EV battery industry ecosystem,” including a focus on battery reuse and recycling.
To further understand the key themes and technologies disrupting the automotive industry, access GlobalData’s latest thematic research report on ESG in Automotive.